AS-14 – Accounting for Amalgamations :

This standard deals with accounting for amalgamations and treatment of any resultant goodwill or reserves. The standard classifies amalgamation into two categories i.e. (i) amalgamation in the nature of merger and (ii) amalgamation in the nature of purchase. In the first category where there is genuine pooling not merely of assets and liabilities of the amalgamating companies but also of the shareholders’ interests and of the business of these companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and as a consequence, the shareholders of the company which is acquired, normally do not continue to have proportionate share in the equity of the combined company. Also the business of the company which is acquired is not intended to be continued.

When an amalgamation is in the nature of merger, it should be accounted for under the pooling of interest method and an amalgamation in the nature of purchase, the method is designated as purchase method. In preparing transferee company’s financial statements under pooling interest method, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The difference between the amount recorded as share capital issued and the amount of the share capital of the transferor company should be adjusted in reserves. In preparing the transferee company’s financial statements, under purchase method, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts, or alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves whether capital or revenue or arising on revaluation of the transferor company other than the statutory reserves, should not be included in the financial statements of the transferee company. Any excess of the amount of consideration over the value of net assets of the transferor company acquired by the transferee company should be recognised in the balance sheet of the transferee company as goodwill and if the amount of consideration is lower than the net value of assets, the difference is to be treated as capital reserve.